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part B ii Operational Gearing
can i calculate it as operating gearing= total contribution / (total contribution – Fixed Cost )
i did it like this : =
contribution = 50 k – 25.5 k = 24.5 k
fixed cost = 2500___ operating gearing = 24.5 / (24.5 – 2.5 k) = 1.11
is this wrong? cuz the book answer is 4.1
There is no standard measure of operating gearing.
Unless the question specifically tells you how it wants it to be measured, then you can do it any way you like.
Expressing it as contribution/profit, as you have, is fine (provided of course you can comment on changes from year to year sensibly 🙂 )
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